Oil dips as Nigeria cancels strike

Money April 1, 2003: 11:01 AM EST

Nation's biggest union calls off a 3-day strike set for Tuesday, raising hopes for normal output.

LONDON (Reuters) - World oil prices eased Tuesday after the cancellation of a general strike in Nigeria raised hopes that output closed by ethnic clashes in the West African OPEC member might soon return to normal.

At around 10:45 a.m. ET, light crude for May delivery shed 79 cents at $30.25 a barrel on the New York Mercantile Exchange.

In London, benchmark Brent oil fell 25 cents to $26.30 a barrel. Prices eased after Nigeria's biggest union called off a three-day strike originally scheduled to begin on Tuesday.

"News of the agreement on the Nigerian strike has given the market some breathing room," one London oil trader said.

While the 12th day of war Iraq and prevented a steeper price fall, dealers feared a strike would have further deepened the crisis in Nigeria, the world's eighth-largest oil exporter.

Tribal clashes have shut nearly 40 percent of Nigeria's 2.2 million barrels per day of crude production for more than a week. Oil producers Shell and ChevronTexaco have said they will not resume operations from Forcados and Escravos in the western Niger swamps until they can be sure of their staff's safety.

Nigerian and Iraqi jitters have helped support oil prices in recent days after the market lost a quarter of its value in the approach to the start of the war when dealers took the view that Baghdad would not resist for long.

War worries have been countered by world supplies sufficient to meet lower seasonal demand in the second quarter.

"What's driving prices right now is the offset between supply security fears, balanced against expectations of softer demand, which you normally get at this time of the year," said Kevin Norrish, energy analyst at Barclays Capital.

While the war has put a halt to Iraq's 1.8 million bpd of crude exports, the Organization of the Petroleum Exporting Countries has compensated with increased supplies, with U.S. ally Saudi Arabia in March hitting its highest production level in 21 years

"As far as the war is concerned, we have lost Iraqi supplies but clearly OPEC is still managing so far to make up for that," Barclay's Norrish said. Gasoline

Global energy demand on the 77 million bpd world market normally drops about two million bpd in the second quarter when warmer weather sets in the United States and Europe.

Demand then picks up again when gasoline consumption by motorists rises in the summer holidays.

Nigeria's high-quality crude, ideal for gasoline production, is missed because it is a popular feedstock among U.S. refiners.

Gasoline stocks in the United States are below year-ago levels as the world's biggest consumer of motor fuel gears up for peak demand. Click here to check CNN/Money's commodities page

"Looking at where U.S. gasoline inventories are and where prices are, lots will depend now on how soon Venezuela will get its gasoline production back to normal," Norrish said.

Venezuela, struggling to get production back on stream after a crippling opposition strike, said it will restart gasoline exports this week to the United States and expects all refining and exports to return to normal in four to six weeks.

The strike had contributed to extremely tight oil inventories in the West even before the war in Iraq.

Analysts polled by Reuters predict that U.S. data due Wednesday will show a large crude stock rise after a week of heavy imports.